Q: Try as we might, my husband and I cannot quite come up with funds needed for a 20 percent down payment for our first home. We don't want to lose out on what's left of low mortgage rates, but we'll have to pay for mortgage insurance if we can't put 20 percent down. BTW, we have enough to pay closing costs and a 16 percent down payment for the home we want to buy. We don't want to borrow money from our parents, but don't want to pay higher monthly payments. How can we avoid paying for mortgage insurance?
A: You are so close to meeting a 20 percent down payment that it's worth looking for additional funds in order to avoid mortgage insurance premiums. A family member or friend may provide a cash gift toward your home purchase, but the donor must document the gift with a letter stating the amount given and that it is not expected to be repaid. Check with your loan officer for specific down payment requirements. If gifts or loans aren't an option, ask your loan officer about down payment assistance programs for first-time home buyers.
These programs are typically offered through state housing finance agencies. First-time home buyer programs provide low-cost second mortgages that typically do not have to be repaid until you vacate the home. These programs require borrowers to meet eligibility requirements and loan amounts are usually limited to three percent of your home's purchase price or appraised value, whichever is less.